New Ord on tax relief may reduce minimum tax to 0.25pc

ISLAMABAD: The Presidential Ordinance on tax relief measures to be promulgated next week, may reduce the minimum tax rate from 1.5 percent to 0.25 percent for the dealers/distributors of steel products.

Official sources confirmed to Business Recorder that the Ordinance would be promulgated next week.

According to a letter of steel producers to Dr Waqar Masood Khan, special assistant to the prime minister on revenue, the manufacturers of steel products are operating on very thin profit margins, and similar earnings’ philosophy rests with the dealers and distributors of steel products.

Thus, the existing extortionate rate of minimum tax (1.5 percent) applicable under Section 113 of the Income Tax Ordinance, 2001 not only discourages the steel manufactures for future investments in the sector but it also becomes additional burden on their cash flows and discourages the supply chain of steel sector (distributor/dealers and retailers/traders) to document their business transactions with the FBR.

It is a counter-productive unfair tax that is not likely to produce the desired results, they said.

The manufacturers of steel products have been pursuing this matter since long and in principal there has been an agreement that this is an unfair tax on the documented sector which is already bleeding.

Therefore, the issue should be resolved in the upcoming ordinance and reduce the minimum tax rate from 1.5 percent to 0.25 percent for the dealers/distributors, under Section 113 of the Income Tax Ordinance 2001.

As a result of reduction in minimum tax rate, the distributors/dealers and retailers/traders will be encouraged to become part of the documented segments which would ultimately result in increased tax revenue for the government.

On similar grounds, the federal government has already facilitated dealers and sub-dealers of sugar, cement, and edible oil by reducing minimum tax rate from 1.5 percent to 0.25 percent by inserting clause 24(D) of part II of Second Schedule through Finance Act, 2019. The amendment through the upcoming ordinance will send a very positive message to the local steel industry that is in deep crisis right now, manufacturers of steel products added.—SOHAIL SARFRAZ